Hat tip to Tom for sending this along.
Sean at foreclosureradar.com has published his latest report:
https://s3.amazonaws.com/CA_Foreclosure_Report/September+2009+CA+Foreclosure+Report.pdf
Excerpts:
With 90,365 properties in inventory, banks currently carry about 4.77 months of supply, however, it takes the banks on average 7.33 months to dispose of a bank owned home, thus current inventory is less than should be expected from normal operations given current foreclosure volumes. Bottom line – there is no “shadow” inventory of bank owned homes being intentionally withheld from the market.
The number of properties on the brink of foreclosure continues to increase and has more than doubled from a year ago. With a smaller percentage of scheduled foreclosures actually being sold due to postponements at trustee sale, while at the same time seeing strong sales of bank owned (REO) properties, banks have managed to reduce their inventory by 41.8 percent from a year earlier. With the banks reselling an average of 18,943 homes a month in the 3rd quarter, and an average time to resell of 7 months (given the time taken for eviction, repairs and resale), we believe there is essentially NO shadow inventory of bank owned homes at this time. Moving forward there are more loans which are delinquent, in default, and scheduled for trustee sale than ever before, which would typically lead to a significant rise in foreclosure sales. We do not believe this increase is likely in the near future given the continued political pressure on banks not to foreclose.
Foreclosures continue to be sold at trustee sale at considerable discount to both the outstanding loan balance and the current estimated fair market value. As we saw in foreclosure outcomes, the lure of an average 20.5 percent discount to fair market value has dramatically increased the number of properties sold to 3rd party investors. At the same time it is very clear why more properties aren’t purchased at auction – with banks pricing the properties they end up taking back as REO an average 23 percent more than the current market value.
***********************************************
Here the weekly totals of new SD REO listings coming on the MLS – no real increases:
| Week | # of REOs |
| Sept 3-9 | |
| Sept 10-16 | |
| Sept 17-23 | |
| Sept 24-30 | |
| Oct 1-7 | |
| Oct 8-14 |
Of those 1,116 REO listings, 717 have already been marked contingent, pending, or sold (64%). The drip system is working great for the lenders!
In the same time frame there have been 4,753 non-REO listings inputted, and 1,850 of those are contingent, pending, or sold (39%).
REO listings make up 19% of the total new listings, but 28% of the contingents, pendings, and solds.
Yay for FHA.
It makes sense the banks would take back more as REO than selling at auction. REOs have a realtor assigned to the property and are listed in the MLS, and provide more opportunity to all buyers. Auctions are riskier and you’re going up against the Jon Mann’s, and likely to get bashed. If you’re trying to find a home for your family to live, and not a flip or rental investment, then at least a REO has been vetted by the bank and restored to liveable condition. At auction, you need all cash, buy the house as-is, and are on your own to get the angry owner or tenant evicted with minimal damage done. For me, auctions are way out of my league. I’d prefer a REO any day and be willing to pay more for it.
I have been told that the real “shadow inventory” lies in those homes that should have been foreclosed on — because the owners stopped making payments over six months ago — but have not been. Because the bank doesn’t want to take the hit to the balance sheet.
Any validity to this from where you sit, Jim, or just more doomer fantasy?
Bob:
It is true. There are plenty of people stop paying for over 6 months and have not even receive NOD.
One of my friend stop paying from Feb, and not even a phone call from bank.
The bank acts as if they are paying all payment on time for over 8 months now.
I’ve been interested in one property since January. It is listed as a short sale, and the bank is inflexible in its terms. Apparently, the owners stopped paying in July 08 & moved out in April 09. I’m just waiting to see what happens and looking at others in the meantime.
I’ve never thought of shadow inventory as inventory the banks own and are holding back. At that point you’d have to be stupid to hold onto the property with it sitting vacant and devaluing because a vacant house can deteriorate quickly.
I always thought of it as “what’s going to happen to all the people who aren’t paying their mortgage, are they going to have their loan modified, short sale or foreclose” At some point the numbers would lead us to one or the other, but right now the numbers say “None of the above” If none of the above, what is the other option?
this is true.
Shadow inventory is a mis conception.
Banks are not in the buisness to keep and maintain properties. Thus when properties are taken back by the bank they are usually (98%) immediately put back into the pipeline.
The shadow inventory is -and only is – the huge amount of delinquent mortgages that “most” banks are not activley pursuing a foreclosure aggressively- yet- and that will change over time. I also know at least 20 people who are not paying on their loand for a significant amount of time and have yet to receive a NOD. But of course in Vegas currently this is the “En Vougue ‘ thing to do.
I agree that the “shadow inventory” is not something that is being held in secret by the banks. Rather, it’s the properties that should have been foreclosed upon but (due to moratoriums, HAMP, inefficiencies, etc…) haven’t been. So, unless more roadblocks are put in place by the government, we should start a ramp-up in the flow of foreclosures. Of course, if the first-time-buyer credit is extended/expanded, it could all be business as usual as the euphoria continues unabated.
BTW…
Here’s an example of an individual who’s been living rent-free for nearly 2 years…
“Carlos Estrada, 57, of Tulare, Calif., for example, hasn’t made a mortgage payment since February 2008. The construction jobs that kept him working more than 40 hours a week during the housing boom have all but vanished.
Earlier this year, he turned down a modification offer from Bank of America because it would have incorporated his unpaid balance and raised his monthly bill. But a bank spokeswoman said Wednesday that Estrada’s foreclosure sale had been postponed until late next month while the bank reviews whether he can qualify for help.”
http://www.latimes.com/business/la-fi-foreclosures16-2009oct16,0,619842.story
Are the banks intentionally dragging their feet and taking advantage of the situation in order to avoid showing losses now?
Citi CFO John Gerspach:
“HAMP also reduces net credit losses as loans in the trial period do not get charged off at 180 days past-due as long as they have made at least one payment.”
Don’t they have to come clean at some point?
FYI: Foreclosures: ‘Worst three months of all time’
CNN-Money,http://money.cnn.com/2009/10/15/real_estate/foreclosure_crisis_deepens/?postversion=2009101507
Wouldn’t this hurt the banks anyway in the form of lost revenue? Or do they get to avoid realizing that loss because the money is still technically owed to them? I’m waiting for the day they create something like the FDIC but for investments. Oh wait, that’s the fed… and the taxpayer.
1. Banks can postpone a foreclosure if they want
2. Banks don’t even have to start the foreclosure process if they don’t want to. (Requires creative accounting to cover up)
3. Because of TARP banks have operating $$$ even through they might be technically broke.
4. FHA Fannie/Freddie are buying up crap mortgages from banks with taxpayer $$$ to allow banks to continue lending.
5. The Fed is making the hole thing happen by printing $$$ and buying treasuries to keep interest rates artificially low.
The dollar is being sacrificed to keep “too big to fail” bankers and political cronies in business. If you think low interest rates are in place to help buyers you are sadly mistaken.
“Estrada’s foreclosure sale had been postponed until late next month while the bank reviews whether he can qualify for help.”
THE REST OF THE STORY: NEXT LINE READS:
“I’m still here waiting for them to help me resolve this situation,” Estrada said in Spanish.
Adios Muchacho. Pay up or GET OUT!
Next Up: I’M A VIIICTIIIM……
BTW for those that don’t know…
Low interest rates benefit those with high amounts of debt
High interest rates benefit those with high amounts of capital.
low interest rates are being artificially “stimulated” by the fed purchasing treasury bonds with dollars. The fed gets the dollars it needs to buy treasuries by printing money.
The more dollars the fed prints the the less each dollar can buy. This is also called inflation.
Inflation benefits those with high amounts of debt
Inflation hurts those with large amounts of cash(dollars)
Inflation benefits those with high amounts of commodities. (gold, oil, gas, wheat, etc)
This is why it seems like the money you make doesn’t seem to buy as much lately.
The is also why the price of gold, oil, etc seems to be going up lately.
My realtor told me that it is a great time to buy a house, should I beleive him?
shadash,
Could this also be why the DOW is back above 10k? Are all those foreign holders of US $ (you know, the ones we bought all the stuff from with our HELOCs and credit cards) wanting to unload it, so they’re buying stocks before the US $ becomes completely worthless?
Shadow Inventory Outrage: the 20M “shadow inventory” home on the beach in Malibu Colony that was held off the market several months while being used by the lender’s REO VP as a weekend party house. Weekend guests were ferried to the beach front home from a yacht parked offshore – to avoid being seen by the guard gate. Makes you wonder????
I remember reading that shadow inventory also, includes all the folks who took their homes off the market, “rather than give them away,” hurrying off the sidelines at the first sign of the market returning, flooding the market with supply.
Ronald McMansion,
Stocks are kind of like a commodity. I’m sure some of the 10k can be attributed to inflation.
Is it time to jump back into the phx market?
A lot of the 10K Dow can be attributed to the excess liquidity the Fed is printing and the consequent need to keep pulling the wool over the US taxpayer’s eyes.
Also, commodities are priced in dollars which as it falls makes them more attractive to foreign buyers.
Then you have the large corporations which make a lot of their profits in foreign currencies.
Thus Commodity and large cap stocks are powering the move up while small caps are still reporting tough times on Main Street.
Finally, there is a lot of suspicious trading going on with at times up to 40% of daily volume in 4 worthless stocks: Fannie, Freddie, Citi and AIG.
You think Uncle Sam does not know they have to keep the Ponzi scheme going at our cost?
Eventually as job losses power on next year, it has to affect housing. The only thing that could save it for a while would be an extension of the housing tax credit.
However, that may hold up the low and mid end but not the higher end.
More idiots talking about high inflation. Check the actual inflation numbers. We are in a period of deflation (due to the poor economy), not inflation. Housing is a good example-a million dollars (or a hundred thou) buys you more home today than three years ago-that is, deflation.
Geotpf,
Houses are just one item.
To measure inflation you use several different items. Sometimes this is called “a basket of goods” in Economic terms. The more items you place into the basket the better your data will be.
If we were experiencing true deflation the price of oil, gas, gold, corn, etc would all be going down at the same time.
The price of houses aren’t really a good way to measure inflation because there’s so much outside influence on prices. (Interest rates, Down payments required, IO/ARM mortgage availability, etc)
Deflation (or below average inflation) is occuring in things other than just housing. This is typical in periods of bad economy-retailers and manufacturers are willing to give discounts if demand is weak. It’s just most dramatic in housing.
Ahh… I see what you’re talking about.
I was speaking about the price of raw materials used to produce goods going up.
You are speaking about the cost of finished goods going down because retailers are selling at lower prices to move inventory.
Interesting when you understand where others are coming from.
Well said Shadash. To suggest speak of inflation is idiotic in the current environment, is to really void one’s self of any credibility. I’m not saying it’s guaranteed, but it sure seems like it’s coming. In fact, it would appear the Fed’s solution is to inflate our economy out of the recession.
“we believe there is essentially NO shadow inventory of bank owned homes at this time”
I don’t have a counter argument to this, especially if we are talking about all of California, but my neighbor is renting a home from a bank. The home was vacant for a year before they rented it out. Might be a special case, but when it is your neighbor it makes you think not.
But there IS shadow inventory, maybe not necessarily REO shadow inventory, and lots of it in Orange County. I wrote a program that collects & normalizes trustee sale data into a spreadsheet. I then rate the properties 1-5, with 1s meaning I’m showing up with cash at the auction and 5s meaning I don’t even care to look at the auction results. Every day, I’m rating at least 1 property a 1 or a 2, but only one of the 1s or 2s auctually gets sold at auction per week. I have about 20 properties I’m ready to buy that have been postponed for at least a year (most are vacant). Probably only one of them actually gets cancelled per month.
When the banks do auction them off, they are finally being more realistic with opening bids (about 50% of the time, probably only 10% of the time at the beginning of the year) and there is a lot of competition.
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
Consumer price index.
1982-1984ish is 100.
Sept 2008 was 218.783.
Sept 2009 was 215.969.
215.969 < 218.783.
Therefore, deflation.
And what would you say “high”, worrysome inflation is? 10%? The index would have to be 240 then. I imagine there will some inflation soon, but it will be very low, 1% or 2% a year.
Geotpf,
I stopped trusting gov produced numbers a long time ago. The numbers generated in 1984 can’t reliably be compared to numbers generated today.
shadash-Do you have a non-governmental source that shows high inflation currently?
Whether or not there’s high inflation right now may or may not be an issue. But at the rate we’re printing money, it’s future inflation we should be worried about. Massive inflation in the near future is most definitely a possibility. Maybe it won’t happen, but you certainly can’t dismiss it altogether.
How about a source that is both gov and non gov…
Up until March 2006 the gov produced M3 data. Here’s a link showing more about it.
http://en.wikipedia.org/wiki/M3_%28economics%29#Empirical_measures
Here’s a private recompilation of M3 data since March 2006.
http://www.nowandfutures.com/articles/20060426M3b,_repos_&_Fed_watching.html
As you can see there’s a reason the fed stopped producing M3. It used to be the standard people used for tracking inflation.
What the Blur said. The concern is more about inflation once the economy recovers, not while it’s still in the doldrums with high unemployment. And — link to the blog’s top subject here — if inflation does go up the Fed is likely to respond by aggressively raising interest rates to keep it controlled. That would be a substantial shock to a housing market that has gotten used to what has been, by historical standards, very low mortgage rates for years.
I might be kind of late to this article, but I have some interesting insight.
My mothers boyfriend has an old friend who is a VP. at a large bank, and is incharge of repos. She has been advising my moms boyfriend of when it is a good time to buy. She is saying that the banks are under enormous pressure from the Federal Gov. not to foreclose, and especially will not be foreclosing during the fall so every one will be in a home during the Christmas season. At this point she is advising her friend to wait until next fall,(A year from now). They will not be foreclosing until next year.
My mother believes this inside information is very credible. It also makes sense why the inventory has shrunk, and explains the “shaddow inventory” as defaults that the banks won’t act upon. Even Data quick’s latest article says the banks are not foreclosing for their own best interest.
Everyone I am absolutly convinced the best form of action in this market is to just sit back and enjoy. Let the fools empty their cash out now. Next year is a whole new ball game.
defaults up 28% in 3rd quarter 2009 LA county
Defaults up 30% in 3rd Quarter 2009 Orange County. This is all just future foreclosure inventory.
The 12.7% unemployment rate in LA county will not be helping defaults around here in LA. either.
Merry Christmas everyone.